Broken Economy

Brookings

Americans are riveted by Detroit’s municipal bankruptcy—the largest in the country’s history. Michigan Governor Rick Snyder and Detroit emergency financial manager Kevyn Orr are engaged in a historic intervention with serious implications for Detroit’s citizens and businesses, pensioners and creditors. Yet they know that getting Detroit’s fiscal house in order—as difficult as that is—will not be sufficient to renew Detroit. Detroit needs a strong growth strategy to complement the state’s intervention on debt and deficits. Absent an economic revival, the city’s fiscal problems will be recurring and inescapable.

The good news, lost amidst the screaming headlines over bankruptcy, is that market momentum in Detroit’s core is real and palpable and provides a strong foundation for future growth. In fact, the broadly supported Detroit Future City plan provides an excellent blueprint for growth and investment. Now is not the time for investors outside Detroit merely to observe or monitor the dramatic intervention of the state and the bankruptcy process. Rather, this is the time to engage in a productive and creative fashion.

Like many American cities, Detroit has a strong core. Its 7.2 square miles, encompassing Downtown, Midtown, New Center and a handful of other neighborhoods in a city of 138 square miles, is seeing a surge of private and civic investment and business and residential growth. In this relatively small area of the city there are roughly 5,400 businesses, employing more than 135,000 workers. Add to that the 29,000 students at Wayne State University, and the numbers represent a remarkable opportunity to catalyze growth in businesses, the residential market and all that follows.

Market momentum, against all odds, is already apparent. The downtown is being transformed by Dan Gilbert, founder of mortgage provider Quicken Loans. In 2007, Gilbert moved the firm’s headquarters from suburban Farmington Hills to downtown Detroit. Since then, he has brought more than 7,000 employees downtown and purchased more than 15 buildings and two parking garages in the downtown area. The firm is now the third-largest landholder in the city of Detroit, behind the city government and General Motors. Gilbert’s purchases and building plans are all part of his Detroit 2.0 revival vision, “a lively live-work-play district in the heart of the city based around entrepreneurial companies in the digital economy.”

Gilbert’s acquisitions, of course, built on incomparable assets: The downtown is a National Register Historic District with more than 50 landmarked buildings.

Elsewhere, the Kresge Foundation contributed $50 million toward a major public-private reclamation and redevelopment project along the city’s riverfront.

Invest Detroit, the Detroit Downtown Partnership, and the Detroit Economic Growth Corporation have nurtured these deals and the broader revival for years.

Gilbert’s confidence has sparked decisions by other firms to expand their downtown presence and a new subculture of entrepreneurial tech-oriented start-ups, such as Digerati, Detroit Labs, and Stik, has emerged in the shadow of larger firms.

Similarly, Sue Mosey, president of the community development organization Midtown Detroit Inc., is leading a revival of that neighborhood driven by four major anchor institutions—Henry Ford Hospital, the Detroit Medical Center, Wayne State University, and the College for Creative Studies. Over the past decade, Mosey and a dedicated network of institutional partners have helped drive $1.8 billion in public and private investment in midtown.

Highlights include the following:Henry Ford Hospital recently finished a $300 million renovation and in 2010 announced a $1 billion expansion with commercial, retail, and housing space.

The Detroit Medical Center, employing about 3,000 physicians, has invested $850 million over the past several years, including a new heart hospital and an outpatient pediatric facility.

Wayne State University, the largest public research university in the city of Detroit, is building a $90 million biomedical research facility to link up with researchers at the Henry Ford Health System and is home to TechTown, a technology research center and business incubator.

The College for Creative Studies, one of the top design colleges in the world, expanded in 2008 with a $145 million redevelopment of the historic Argonaut Building (formerly General Motors’ first research and design studio).

The building of M1 Rail, a 3.3 mile light-rail line from downtown to Grand Boulevard at the upper edge of Midtown Detroit, is the latest infusion of capital into the community. A consortium of public, private, and philanthropic institutions—including General Motors and Chrysler, the Kresge Foundation, and major individual backers such as Dan Gilbert, Roger Penske (the CEO of Penske Racing), and Peter Karmanos (the CEO of Compuware)—have committed more than $100 million to construction of the project.

In January 2013, the federal government contributed $25 million to the rail project, an act made possible only after the state authorized Detroit Regional Transit Authority was created. As U.S. Secretary of Transportation Ray LaHood said on making the announcement, “Nobody in America, no community, has ever raised $100 million for a project like this. That is unprecedented.... They’ve done everything we’ve asked them to do.”

That underscores that the federal government should also be a partner—not a leader, not a savior, but a partner—in the revival of the Motor City. It has a stake in the success of the city, because it invests in the city in large and small ways—through smart investments in people through the Earned Income Tax Credit, in universities and corporations through advanced research and development grants and contracts, and in businesses through SBA, Export-Import Bank and FHA loans.

City mismanagement and drift has meant that a small portion of federal funds (e.g., in Community Development Block Grants) have been either unspent or misallocated.

The federal government should move quickly to either shift responsibility for the allocation of these funds out of the city government and to a capable partner, like the Detroit Economic Growth Corporation, which already handles most of the real estate development responsibilities for Detroit, or make funds more flexible, as the federal government generally does in the aftermath of natural disasters.

New private and civic investors can also play a critical role. A consortium of philanthropies has already pooled resources through a $100 million New Economy Initiative. This could be a model for other investors to channel capital in a way that is patient, strategic and high-impact. Financial institutions could also work with the state and corporate, community and civic leaders in the city to create new financial instruments to crowd-fund resources for targeted and transparent investments.

For generations, Detroit has had a strong emotional pull on our nation—as the center of technological innovation in the early part of the 20th century, as the arsenal of democracy during World War II, and as a symbol of urban decline during the past 40 years. During a period of national drift and partisan discord, renewing Detroit—through economic growth, job creation and market transformation—could help renew our nation.

Bruce Katz is Vice President and Director for the Metropolitan Policy Program at Brookings.

Jennifer Bradley is a Fellow and Senior Advisor with the Brookings Metropolitan Policy Program.